Children’s Life Insurance

Children's life insurance also known as kiddie insurance is a highly debatable subject in the world of life insurance sales.  Being that the need for life insurance has not been not established it is generally suggested that parents do not buy life insurance policies exclusively for their kids.  Rather they focus their money on other savings accounts for children and instead hold out on getting them insurance until they are aged 18 or older.

I realize that it may be a bit surprising to come to an insurance agent's website to read an article about why your child does not actually need something that, technically we sell.  However it is true.  Unless your child has a job and is paying the bills, I struggle to see the value in these policies.

This idea is highly supported in the national media from many of the best names in personal finance. Just go ahead and research the topic.

This article intends the word children to mean Individuals /minors under age 18.

Buying Life Insurance for Children is not as straight forward you might think.  Children's life insurance, also known as Kiddie life insurance or Kiddie policies are generally done in one of three manors.

If you are convinced that you want to insure your children's life than the best way is to tack a rider onto your existing life insurance policy.  Inquire with them what the process may be.  Often a rider for $25,000 may be available for a small price. This is the preferred option because it is cost efficient and does not require an entirely separate policy.

The other method is to go ahead and purchase a "grow up" type plan such as the ones offered by Gerber. Although these policies are well intentioned they tend to be expensive for what they give you.

The third method is in our opinion technically the most logical and financially sound.

Life Insurance is best used as a risk management tool to help protect ones the you love with a financial safety net.  Since Mothers and Fathers are the ones working to provide income and support, their loss needs to be backed up by this safety net.  Since children are not providing and not working there is very little reason to insure their lives.

The sad truth is that this topic is disgusting and hard to fathom.  But the cold hard reality is that in comparison to raising your child for the next 8,10, or 12 years, burying them is far less expensive.

The best reason presented for the value of Children's Life Insurance is to allow the parents to take some time off of work to grieve.  And there is some value to this concept.

My professional theory on buying all insurance is that most people's income is limited.  What you spend on this pot has to be taken away from that pot.  Therefore you must be judicious with your cash. I would far prefer that clients instead use the money that they were going to spend on a kiddie life policy to fund a college 529.  If in this gruesome scenario the named beneficiary of the 529 (a child) were to die then: "the child named as beneficiary of a 529 plan account dies or becomes disabled, the account owner may withdraw the entire balance of the account."

However assuming the best and there is not an early death, your child can then attend college with the money that has built up over 18 years.  At age 18, or perhaps 22, you can use your money to get them into a 30 year convertible term life insurance policy for likely far less than that kiddie policy may have costed you.

A great resource for 529 accounts can be found here at Saving For College.

The numbers are clear, the choice is yours.

Absolutely, if your children are making a great income and are supporting the parents then a strong argument can be made for having a life insurance policy for them, even a true childrens life insurance plan.  Perhaps a Child Actor, or an heiress to a fortune, these types or other very rare situations.

However even if your child is a famous actor, won't the parents still be working?

Another more realistic scenario, one in which we have discussed often involves something similar to children's insurance, however it is different.  If you have a special needs child and hence a special needs trust, than a whole life insurance policy taken out on the parents lives to fund the trust, this is often advisable. (Please see an attorney about such an arrangement.) Although this is technically not a children's life policy, it is somewhat similar.

Still want to build up on life insurance and are  sold against the idea of buying a life insurance policy on your young children, than consider bulking up on term insurance for the parents.  Both parents working or not should typically have a term policy on their lives.  Ten times earning for all involved.  If a spouse does not work, than a smaller figure for him or her.  Sometimes five times is appropriate for the non working spouse.  However this does depend.

And this is precisely the problem with buying children life insurance.  Since they have no income and perform only minimum around the house to help out, its difficult to establish a dollar figure. Judging by the way the life industry sells these policies than $25,000 is the appropriate amount. In other words that is size of the common policy not necessarily what you need. In general I do not believe that most kids need a kiddie policy.

Vote with your feet or your phone.  That is, don't return the persons call or walk out of their office. If you do not want a kiddie policy, just don't buy it.  Do your own research and read what experts have to say about the practice.  It is your money and your life (and your kids life.)  Do what you feel makes the most sense.

sales at marindependent.com